Call it a gut feeling, but in the past month or two I’ve become increasingly convinced oil has the potential for another price spike. The last 2 weeks have seen the first sustained break of $100 for WTI in the past year. The $111.50-114.50zone should prove pretty tough resistance, but a potential break of this zone would definitely signal the oil price’s going into orbit. Brent‘s even closer to its key medium term resistance zone of about $125.50-127…

Perhaps I’m a touch cynical, but I’m completely bemused to see Obama hold himself out as the voice of reason in the whole Iran (and Israel) situation. WTF?!Where on earth do you think most of the sabre-rattlingwith Iran is coming from? Yeah, White House back-channels, of course… And expect the rhetoric, and paranoia, to get much worse as we head into summer. It’s always useful for a sitting President to play the defence/war/security card as he heads into an election…

Oh, and a high oil price will be a wonderful lead-in to plenty of new guff about America’s energy policy (apologies, this implies there is one…) – perfect!Just as most American politicians/candidates have been doing, without much result, for the past 40 years. And speaking of summer, it really won’t be too long before the US media starts yapping about the driving season there again…

Bearing all this in mind, the pols are already starting up again with the blame game. This is utterly ridiculous – if you want to look at this in a purely American context, the high oil price’s down to a single person… Yes, probably the most powerful unelected politician academic ever, Mr. Ben Bernanke! Don’t underestimate the inflationary impact (with more to come) of US (and global) QEefforts (plus other forms of CB liquidity, and deficit spending of course), past and future, to support/drive up oil and other commodity prices.

In the short-term then, oil may be facing the perfect storm of bullish technicals, manipulation, sentiment, presidential/election year rhetoric…oh, and maybe even some actual newsflow from Iran and/or Israel. Longer term, I’ve previously mentioned I’m also bullish on oil. Whatever your thoughts about oil, from a price or investment perspective, this is an utterly crucial subject for all of us – literally in its long-term implications for our day to day lives. The best history and background on the entire subject definitely comes from Daniel Yergin ‘The Prize’(my original copy, which I was somehow inspired to buy in college, has gone astray, so I think it’s time for me to buy and read the new edition also). That covers the history, and Matthew Simmons ‘Twilight in the Desert’ will bring you completely up to date…

I have/will be writing about other more direct oil (and commodity) investment opportunities, but here I want to return to a compelling long-term/indirect play on a bullish oil price: Islamic finance, which I wrote about here. Ever-increasing Middle Eastern oil profits require Islamic finance institutions to deposit, allocate, protect and re-invest this wealth. Suitable institutions based outside the region, in London or New York, are in an ideal position to offer better security/diversification for this wealth. EIIB is one of the v few obvious listedcandidates that fits the bill.

The other great thing is that a rising oil price would likely improve sentiment for all things Middle Eastern, and EIIB and its investments could well attract some positive sentiment/buying simply on this basis. I was fascinated to see John Burbank, from Passport Capital, on Bloomberg TV (a rare appearance) talk about investing in the Saudi stock market for v similar reasons. I’ve a lot of respect for Burbank’s investment ideas and world-view, plus Passport’s stock picking skills. (It helps that I personally benefited from their (rare) activism with JSM Indochina (JSM:LN)– though I did invest there first..!) He also has a nice potential kickeron this investment – the Saudi market only has 1% foreign ownership, and is currently opening up, so we may see significant upside fueled by foreign buying when/if access/sentiment improves. Then again, I’d argue EIIB has an extra kicker too – a whopping 58% discount to estimated NAV!

The hope was to raise $50 mio, but it looks like their fund-raising success was limited to $18.5 mio. This is likely explained by the complete absence of UK institutions on the initial share register (reflecting current sentiment, I guess). However, with Middle Eastern investors holding 70% of the outstanding shares (and presumably they’re committed investors), I expect the share price will trade at a low discount, or even a premium, to the NAV (presumably of $0.95 to $1.00). Hopefully, we’ll see some UK press commentary in the next few days, and going forward any interest in Qannas is likely to draw favourable attention to EIIB which trades on a colossal discountby comparison.

Yes, EIIB’s a bank (and I believe this licence may still have significant value), but as I’ve detailed before this is no longer part of their main strategic direction. Also, in this regard, its Equity/Total Assets ratio of 69.2% is extraordinary and v reassuring. The Margin of Safety‘s equally attractive, with a Price/Cash of 0.55 and a Price/Book of 0.42, and we also have a catalyst in the form of activist HBG Holdings’15.6% shareholding and their CEO, Chairman and Non-Exec Director seats.

My current Fair Value Price Target is virtually unchanged at GBP 8.08p per share, offering an Upside Potential of 138% from the current GBP 3.4p share price. I have increased my portfolio holding from 5.3% to 6.4%, now my second largeststake.